Balanced MFs also trip in market whirlpool

If you were one of those who invested in balanced mutual funds three months ago thinking that it was an ideal mix of sustainable returns and sure-shot safety, you may be disappointed.

Balanced funds, as the name suggests are a class of mutual funds that aim at allocating the total assets with a mix of debt as well as equity instruments. In what has been one of the most volatile periods on the Indian bourses, the last three months have shown that even balanced funds are not fully equipped to safeguard your investments in a falling market.

In the period between July 27 and October 27, the average balanced fund is down around 30% - quite a drastic fall given the investment objective of balanced funds which claim to marry returns 'at relatively moderate levels of risks.'

Schemes such as ING Balanced, ICICI Prudential Balanced, Baroda Pioneer Balance and JM Balanced are the worst performers based on their three month record.



While most of the funds have invested in equities as per their stated band, many informed investors have asked the question whether such flexible investment band should be permitted or not.

"Even seasoned fund managers are suspectible to pursue investments in high-return stocks. The flexible investment pattern of a fund investing around 50-75 % in equities comes handy during boom times and delivered solid returns also. But the ongoing downturn in the stock markets has clearly caught them on the wrong foot," said a senior official at an asset management company.

The average 3-month returns of balanced funds (negative 30%) is not quite away from the 36% average fall witnessed by equity diversified fund in the same period, data shows. Industry observers blame the equity exposure levels, which although is less than the stated maximum allocation for these type of funds, but still relatively high.

"The latest numbers indicate that the average equity exposure in these balanced funds is around 66%. The allocation to debt instruments, if possibly more, could have really made returns look much more brighter. Most of the funds are run by experienced professionals but this shows that even people with a lot of expertise have misread the stock markets," said a mutual fund analyst.

The allocation to debt by the average balanced fund stands at less than 20%. But schemes such as DSP Merrill Lynch Balanced Fund and Franklin Templeton India Balanced Fund, which have debt allocations of close to 35% figure in the top performing schemes.

Source: EconomicTimes